Nvidia (NASDAQ: NVDA) and SK Hynix (NASDAQ: SKHY) are two of the biggest names in the AI chip stock space. The former specialises in high-powered accelerated computing products while the latter – which is launching American Depositary Receipts (ADRs) on the Nasdaq today (10 July) – makes memory chips.
Both stocks look cheap right now, especially when their level of growth is considered. But which company do I see as a better long-term investment for my retirement portfolio?
The case for Nvidia
While Nvidia’s had an amazing run over the last decade, there’s still a lot to like about the stock, in my view. For a start, the company’s recently rolled out its latest generation GPU platform, Vera Rubin, and demand’s sky-high.
Second, the company remains the clear leader in the accelerated computing space with a huge market share. Other companies such as AMD and Broadcom are gaining some market share, yet Nvidia remains ahead of the pack.
One reason it continues to be a leader is its CUDA software platform. This provides a moat, as there’s an entire ecosystem of developers who use this to code.
Third, the company’s moving into other areas of chips and AI. Examples here include CPUs, humanoid robotics, and self-driving vehicles.
Fourth, the price-to-earnings (P/E) ratio is under 20, meaning that the company’s attractively valued. Note that the average price target is $302 – about 50% higher than the current share price.
One other thing I like is that the stock’s taken a breather recently and consolidated its gains. This year, it’s up less than 10%. On the downside, a slowdown in AI capex spending and competition from rivals are risks. Overall, there’s a lot to like though.
The SK Hynix story
Turning to SK Hynix, it also has a lot going for it. Right now, memory’s in high demand and as a result, the company’s revenues are soaring.
It’s worth noting that SK Hynix is the dominant player in High-Bandwith Memory (HBM) with a near-60% market share. This memory’s needed for generative AI and tech companies are willing to pay a premium for it.
Another thing to like here is that the company has a very close relationship with Nvidia. In recent years, it’s been a major supplier of memory for Nvidia’s GPUs and today, it’s working closely with the company to develop next-gen memory chips.
As for the valuation, it’s lower than Nvidia’s – the forward-looking P/E ratio’s only about five. Analysts see roughly the same amount of medium-term potential from here though.
Now, while this is all very positive, a risk is the cyclicality of the memory market. In the past, this market’s had major busts and we could see this again in the years ahead if demand falls or supply catches up to demand.
Another issue is that Samsung and Micron are aggressively trying to capture HBM market share, and they’re having success.
Finally, there’s the fact that the stock’s up more than 600% over the last year. That definitely adds some risk.
My choice
Weighing up risk versus reward, Nvidia’s where my money is right now. I see it as the better choice for my portfolio. I may consider buying SK Hynix at some point. But for now, I see more appeal in Nvidia.
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Edward Sheldon owns shares in Nvidia, Broadcom, and Micron
